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Weekly Technical Market Insight: Week Ending 26th August 2022

Weekly Technical Market Insight Week Ending 26th August 2022

Charts: Trading View

(Italics: Previous Analysis)

US Dollar Index:

The US dollar—measured by way of the US Dollar Index—staged an impressive rally last week, adding more than 2.0 per cent and recording its largest one-week advance since March 2020.

Following a test of an ‘acceleration’ trendline support on the daily chart a week prior (drawn from the low 95.17), and last week’s advance, the daily candles are on the verge of shaking hands with familiar resistance between 109.14 and 108.58 (made up of a 1.272% Fibonacci projection, a 1.618% Fibonacci expansion, and a Quasimodo resistance level). Note that the rebound from the said trendline support was backed by the daily timeframe’s relative strength index (RSI) recoiling from support between 40.00 and 50.00, an area delivering an oversold region since August 2021 (common in uptrends).

Trend studies on the monthly and daily timeframes also continue to favour buyers which portends a break of the current daily resistance. As aired in recent weekly technical writing, aside from a 7-year range (forming a pennant chart pattern [considered a continuation signal], taken from 103.82 and 88.25), monthly movement has been higher since early 2008. This is reinforced by the uptrend visible on the daily timeframe, exhibiting well-defined upward action since price made contact with support from 89.69 in May 2021. The upside bias is also shown through the 50-day simple moving average (current: 106.07) crossing above the 200-day simple moving average (current: 100.36) in August 2021 (‘Golden Cross’).

Bearish elements to consider are the monthly timeframe showing prime resistance at 109.77-104.96, together with the monthly RSI demonstrating the possibility of negative divergence within overbought status. Furthermore, we must take on board the nearby daily resistance underlined above.

Technical Expectation:

According to chart studies, technical evidence supporting buyers surpasses the chart’s bearish features. As a result, a break of daily resistance might be seen between 109.14 and 108.58 this week. This may trigger breakout buying and, ultimately, dethrone the monthly timeframe’s prime resistance at 109.77-104.96.

 

DXY-FP-MARKETS

 

EUR/USD:

Shedding 2.1 per cent, Europe’s single currency finished the week at session lows versus the US dollar. Technically, the downside move is unlikely to surprise chartists with an eye for trend direction and support and resistance.

Price action on the weekly timeframe has been entrenched within an unmistakable primary bear trend since pencilling in a top in early 2021 with heavy-handed pullbacks in short supply. This, thrown together with the recent pullback touching gloves with resistance at $1.0298 on the weekly scale, set the currency pair up for another leg lower, with scope to strike a 1.272% Fibonacci projection at $0.9925 this week.

The test of weekly resistance was accompanied by neighbouring resistance on the daily timeframe at $1.0377 and a trendline resistance, drawn from the high $1.1495. Daily support calls for attention at $0.9919—plotted a touch south of weekly support at $0.9925. Those who follow the relative strength index (RSI) will note the indicator is cementing position under the 50.00 centreline, and oversold territory is in reach, together with an indicator trendline resistance-turned-support level and indicator support coming in from 21.87.

Lacklustre trading seen on Tuesday and Wednesday established a bearish pennant pattern on the H4 scale, forged between $1.0122 and $1.0195. The tail end of the week subsequently saw price breakout south, taking on support at $1.0125 (now a marked resistance level), with technical eyes likely directed towards Quasimodo support at $0.9998, followed by the bearish pennant’s profit objective at $0.9928. A closer reading of price movement on the H1 timeframe turns the technical spotlight in the direction of parity ($1.00), a level many traders will talk about this week, particularly if the currency pair finds sellers south of H1 resistance at $1.0046. Below $1.00 focusses on the 1.618% Fibonacci expansion at $0.9972. Terrain above $1.0046, though, could have the unit retest $1.01 and maybe cross swords with a H1 Quasimodo support-turned resistance at $1.0108.

Technical Expectation:

The clear downtrend, the weekly resistance at $1.0298, the daily resistance at $1.0377, the daily trendline resistance, the H4 bearish pennant pattern, together with room to move lower on the aforementioned timeframes, signals sellers have the upper hand this week. Consequently, any rally will likely be viewed as a bearish opportunity, targeting $1.00 on the H1 chart, the H4 Quasimodo support at $0.9998, the H1 1.618% Fibonacci expansion at $0.9972, and then, with a little oomph, weekly and daily supports at $0.9925 and $0.9919, respectively.

EURUSD-FPMARKETS

 

AUD/USD:

It was a bad week for procyclical currencies, such as the New Zealand dollar, the Canadian dollar, and the Australian dollar. AUD/USD plunged 3.5 per cent, reclaiming the prior week’s upside and registered its worst week of trading since September 2021. Consequently, support between $0.6632 and $0.6763 is back on the radar for the weekly timeframe, constructed from a 100% Fibonacci projection, horizontal price support, and a 50% retracement.

Siding with the recent bout of selling is the currency pair’s trend: reflecting a primary downtrend since $0.8007 (22nd Feb high [2021]). The monthly timeframe has portrayed a downtrend since August 2011, indicating the rally from the pandemic low of $0.5506 (March 2020) to a high of $0.8007 (February 2021) on the weekly timeframe is likely viewed as a deep pullback among chartists. Downside from the 2021 February top, therefore, might be seen as a move to explore lower over the coming weeks/months.

Adding to the bearish vibe, the daily timeframe has price action dipping a toe beneath $0.6901, perhaps shaping resistance this week. Splitting the aforesaid support swings the pendulum in favour of reaching trendline resistance-turned support, drawn from the high $0.7661, as well as support at $0.6678. Further weakness is also communicated by the relative strength index (RSI) elbowing under the 50.00 centreline, action informing market participants that average losses exceed average gains: negative momentum.

Addressing studies on the H4 timeframe, we can see price action clipped the lower boundary of supply-turned demand at $0.6901-0.6862 on Friday, signalling sellers are gearing up for a push towards prime support at $0.6774-0.6815 (arranged just north of Quasimodo support at $0.6761). However, before sellers change gears, a pullback to prime resistance from $0.7004-0.6972 might be on the table.

In terms of where I stand on the H1 scale, $0.69 stood little chance on Friday in spite of efforts to hold the psychological base in Asia. The level ceded ground mid-way through the London session, giving way to a retest heading into US trading hours, which, as you can see, managed to hold into the closing bell. Located closely with trendline resistance, etched from the high $0.7123, $0.69 offers moderate confluence (resistance) to work with in early trading this week. Quasimodo resistance-turned support warrants attention at $0.6843, and a break casts light on $0.68 (aligns closely with the daily timeframe’s trendline support noted above).

Technical Expectation:

Technically, price action reflects a bearish stance, both long term and also in the short term. The close beneath daily support at $0.6901, the room to manoeuvre lower on the daily and weekly timeframes (to at least daily trendline support), and the H4 timeframe stabbing the lower limit of demand at $0.6901-0.6862 says this is a market in favour of sellers.

As with any downward facing market, however, pullbacks occur and can present opportunities to jump aboard. Short-term resistance is offered around $0.69, joined by H1 trendline resistance and, of course, daily resistance at $0.6901. Failing to hold here demonstrates willingness to stage a deeper pullback to H1 resistance at $0.6947, sheltered just under prime resistance on the H4 at $0.7004-0.6972.

AUDUSD-FPMARKETS

 

USD/JPY:

Shaped by way of four back-to-back daily bullish candles, USD/JPY flexed its muscle last week and rallied 2.5 per cent. The beginning of August witnessed dip-buying emerge from the weekly timeframe’s decision point at ¥126.40-131.30, leading to a retest of resistance coming in at ¥137.23 in recent trading. Overthrowing the said resistance is certainly a scenario likely in many technical traders’ playbooks this week, in light of the prevailing uptrend. The currency pair has exhibited a healthy upside bias since the beginning of 2021 and forms what many technicians will recognise as a primary bull trend. This is further reinforced by the monthly timeframe’s trend, higher since bottoming in late 2011.

The bullish climate is also reflected on the daily timeframe; price rebounded from supply-turned demand at ¥131.93-131.10, an area glued to the upper boundary of a weekly decision point. Quasimodo support-turned resistance at ¥139.55, therefore, is now in the firing line this week. Supporting trend direction, price has been trading north of the 200-day simple moving average since February 2021. Additionally, the SMA has pointed higher since April 2021: another widely used trend-following technique.

Interestingly, the daily timeframe’s relative strength index (RSI) ventured above its 50.00 centreline after coming within an inch of testing oversold space and forming hidden positive divergence at the beginning of August. Dethroning the 50.00 base adds weight to last week’s push, informing market participants that average gains are exceeding average losses (positive momentum). Upside targets are seen at the indicator trendline resistance, etched from the high 87.44, and indicator resistance at 87.52.

While the trend favours bulls, with room to navigate higher on the daily scale, the weekly resistance at ¥137.23 and the H4 timeframe’s AB=CD bearish pattern at ¥136.95 (a 100% Fibonacci projection) is visible confluence. Combine this with the H4 ascending support-turned resistance, taken from the low ¥134.27, and we have relatively impressive resistance in early trading this week. Note that the H4 timeframe’s reaction from the AB=CD region moulded a shooting star candlestick pattern, considered a bearish signal. Assuming a response here this week, harmonic traders tend to take aim at 38.2% and 61.8% Fibonacci retracements, derived from legs A-D of the AB=CD formation.

Meanwhile on the H1 timeframe, ¥137 commanded attention ahead of the close on Friday, assisted by a Quasimodo resistance from ¥137.15. Above, eyes will be on ¥138; below features ¥136 and an acceleration trendline support, drawn from the low ¥132.56.

Technical Expectation:

Although we are looking at a market that remains entrenched within a dominant uptrend, a retracement is perhaps brewing. Evidence supporting bears in early trading this week consists of the following: weekly resistance at ¥137.23, the H4 AB=CD bearish pattern at ¥136.95 (and H4 ascending trendline resistance), and the ¥137 figure on the H1 (backed by H1 Quasimodo resistance).

While the above may deliver enough to tempt a bearish scenario, whether it will be sufficient to encourage prolonged selling is questionable. I say this because of not only the current uptrend, but also due to the daily timeframe demonstrating scope to climb to ¥139.55.

For that reason, bears could show early in the week and trade short term, though longer term is in favour of the bulls.

USDJPY-FPMARKETS

 

GBP/USD:

Following three weeks of tentative price action, a sharp slump in the pound erupted last week that saw the GBP/USD tumble 2.5 per cent and settle on the doorstep of a six-week low from $1.1760.

$1.1958 is likely out of the fight on the weekly timeframe as a support, hence it’s marked as resistance heading into the week. This is not a surprise as GBP/USD has chalked up an unmistakable primary bear trend since early 2021. Breaking $1.1958 reopens the risk of a return to the pandemic low of $1.1410.

I noted the following in regards to the trend in my previous weekly technical briefing (italics):

Trend direction has been bearish since February/May’s double-top formation on the weekly timeframe at around $1.4241 (2021). Furthermore, seen through the monthly timeframe, the long-term downtrend has been soft since late 2007 tops at $2.1161.

Addressing the daily timeframe, we can see that price movement has been trading beneath its 200-day simple moving average since August 2021. The currency pair, alongside the relative strength index (RSI) dropping below the 50.00 centreline, closed the week within striking distance of two 100% Fibonacci projection levels at $1.1683 and $1.1655. Note that the RSI may actually step into oversold space this week, potentially targeting indicator support as far south as 15.91.

Price action on the H4 timeframe ended the week at an interesting juncture. Quasimodo support greeted the currency pair at $1.1806, a level complemented by a Fibonacci cluster between $1.1803 and $1.1821. While this offers reasonably strong confluence, the higher timeframes project further selling and could, therefore, draw price towards the $1.1760 low. Overhead, nonetheless, sees Quasimodo support-turned resistance at $1.1925 and prime resistance at $1.1978-1.1954.

$1.18 made a show late in the day on Friday on the H1 scale. Quasimodo support-turned resistance also put in an appearance at $1.1826. If the unit managed to reclaim the aforementioned level, follow-through buying appears reasonable to $1.19. Though breaking $1.18, as the higher timeframes suggest, shows limited support until $1.17.

Technical Expectation:

Longer term, GBP/USD is technically exposed to further weakness this week until at least the daily timeframe’s two 100% Fibonacci projection levels at $1.1683 and $1.1655.

Short term, we are at support on both H4 and H1 timeframes. If H1 climbs above Quasimodo support-turned resistance at $1.1826, this signals a pullback is potentially on the cards to $1.19 (followed by H4 Quasimodo support-turned resistance at $1.1925) and consequently opens the door to a short-term bullish scenario. However, cracking beneath $1.18 indicates breakout selling towards $1.17.

GBPUSD-FPMARKETS

 

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

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